Amari Says Further Slide in Yen May Have Negative Effects

By Yoshiaki Nohara and Yuji Okada -
May 19, 2013

Japan’s Economy Minister Akira Amari
said a further slide in the yen would have negative effects
after the currency’s 21 percent drop in the past six months, and
signaled concern at the prospect of higher bond yields.

The yen was the biggest loser among 16 major currencies in
the past six months, as Prime Minister Shinzo Abe pledged to
beat deflation and the Bank of Japan doubled monthly bond
purchases. Amari declined to comment on an appropriate exchange
rate for the yen or say if it has declined so much that its
negative effects need to be contained. The currency touched
103.31 per greenback on May 17, the weakest since October 2008,
and rose 0.4 percent to 102.80 as of 8:30 a.m. in Tokyo.

“It’s being said excessive yen gains have been corrected a
lot,” Amari said on the public broadcaster NHK yesterday. “If
the yen extends losses a lot, people’s lives will be negatively
affected. It’s our job to minimize that.”

Import prices for Japan rose 9.5 percent in April from a
year earlier, while Japan’s Nikkei 225 Stock Average surged 66
percent since November, the most among developed markets. The
government must demonstrate a commitment to fiscal
rehabilitation to boost the credibility of government bonds,
Amari said. Benchmark yields advanced last week to the highest
levels in more than a year.

“As stocks have rallied this much, it’s a common economic
phenomenon and principle that capital shifts from bonds to
stocks,” Amari said. “We need to enhance the credibility of
government bonds to prevent a rise in long-term yields.”

Bond Yields

Yields on Japanese 10-year government bonds were at 0.795
percent on May 17, capping a weekly gain of 10 1/2 basis points.
The benchmark yield reached 0.92 percent on May 15.

A weaker yen typically increases prices of imported goods
while making Japanese-made products more competitive overseas.

The government will decide around October on whether to
raise the consumption tax next year, Amari said.

“The most important factor is that we can confirm the
economy has shifted to an uptrend at that point,” he said.

Though a consumption tax increase may ease Japan’s debt
burden, the world’s biggest, it may also contribute to the risk
of an economic slump.